Postal Rate Commission
Submitted 10/17/2006 3:02 pm
Filing ID: 54134
Accepted 10/17/2006
BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON, DC 20268-0001
:
:
:
Postal Rate and Fee Changes
Docket No. R2006-1
RESPONSE OF TIME WARNER INC.
TO PRESIDING OFFICER'S INFORMATION REQUEST NO. 18
TW-T1 a (Part 1 of 2), b and TW-T2 a (Part 2 of 2) (October 17, 2006)
Time Warner Inc. (Time Warner) hereby provides the responses of witnesses
Robert W. Mitchell (TW-T-1) and Halstein Stralberg (TW-T-2) to Presiding Officer's
Information Request No. 18 (issued September 29, 2006). Mr. Mitchell provides a
response to item a (part 1 of 2) and item b, and Mr. Stralberg to item a only (part 2
of 2)..
Associated with the responses provided herein are Library References TWLR-4 and TW-LR-5, which Time Warner expects to file tomorrow, October 18.
Respectfully submitted,
s/
John M. Burzio
Timothy L. Keegan
COUNSEL FOR
TIME W ARNER INC.
Burzio & McLaughlin
Canal Square, Suite 540
1054 31st Street, N. W.
Washington, D. C. 20007-4403
Telephone: (202) 965-4555
Fax: (202) 965-4432
E-mail: [email protected]
Mitchell (TW-T-1) Response to POIR No. 18
Item a, part 1 of 2
Page 1 of 1
RESPONSE OF TIME WARNER WITNESS MITCHELL (TW-T-1) TO
PRESIDING OFFICER'S INFORMATION REQUEST NO. 18 a (part 1 of 2)
QUESTION:
Please refer to Time Warner witness Mitchell’s workpaper ‘Wp Mitchell-3F06.xls,’ worksheet ‘tybr-4.’
a.
Please provide billing determinants and estimates of test year afterrates volumes and revenues for each of the rate categories (existing
and new) proposed. Provide them separately for Regular Rate,
Nonprofit, and Classroom Periodicals.
RESPONSE:
a.
Time Warner Library Reference No. 5, TW-LR-5, contains two Excel
files. File WP-Mitchell-5-06 is a replacement in its entirety for my
original workpaper WP-Michell-3F-06 (contained in TW-LR-1), and file
PieceVolumes(3) is a reference file containing piece, bundle, and
container counts. In WP-Mitchell-5-06: sheet ‘tybr-4’ contains a full set
of TYBR billing determinants for the Outside County subclass and the
categories of Regular, Nonprofit, and Classroom; sheet ‘Fcst-2’ shows
the development of the tyar/tybr volume ratios; and sheet ‘tyar-1’
provides TYAR billing determinants and revenues for the Outside
County subclass and the categories of Regular, Nonprofit, and
Classroom. As in my original workpaper, sheet ‘Rates’ contains the
rate schedule with the proposed rates. None of the proposed rates
has changed.
Mitchell Response to POIR No. 18
Item b
Page 1 of 2
RESPONSE OF TIME WARNER WITNESS MITCHELL (TW-T-1) TO
PRESIDING OFFICER'S INFORMATION REQUEST NO. 18 b
b.
What rate does Time Warner propose for the current category basic
nonautomation letters? Please describe in detail the proposal for each
of the current letter categories.
RESPONSE:
b.
The proposed rates were developed on the assumption that nonautomation letters are machinable and would therefore pay the rates
for machinable periodicals that are not prebarcoded. This is consistent
with the current classification scheme. The basis for the assumption
of machinability is that there is little reason to assume that these letters
are non-machinable and that only 30 percent of non-automation
publications in general are non-machinable. If some non-automation
letters are non-machinable, some additional revenue would be
received. Except that the basic presort tier is disaggregated into mixed
AADC and AADC, separate piece rates for automation letters are
proposed just as in the current rate schedule.
In addition to the traditional piece and pound rates, letters would
receive a container charge, just as in the Postal Service proposal, and
would pay a bundle charge. The Postal Service might decide that a
tray receives handling that is equivalent to that of a bundle.
The piece rates for automation letters were developed by relying
primarily on the Postal Service proposal. Witness Tang shows a cost
difference between basic non-automation flats and basic automation
letters of 29.6 cents (equal to a letter-flat differential plus the savings
Mitchell Response to POIR No. 18
Item b
Page 2 of 2
due to automation compatibility) and proposes a passthrough of 35.3
percent, yielding a rate difference of 10.4 cents. To get the rate for
automation letters at the mixed AADC level, I applied this difference to
the rate for machinable flats at the corresponding level. Also, Tang
proposes a discount for 5-digit automation letters, relative to 3-digit
automation letters, of 6.4 cents, which I adopted. This leaves two
discounts, AADC relative to mixed AADC, and 3-digit relative to AADC.
Both of these involve the current basic level, which is proposed to be
deaveraged. Making matters worse is that Tang (in cell F45 of her
‘Discounts’ sheet) erroneously calculated the cost avoidance for the 3digit pieces as equal to a letter-flat differential at the basic level (which
may be viewed as applicable) plus the difference between a 5-digit
non-automation letter and a 3-digit automation letter (an irrelevant cost
difference). I selected an ADC discount (relative to mixed AADC) of
3.8 cents and a 3-digit discount (relative to AADC) of 1.4 cents. The
resulting rate for 5-digit automation letters is 19.1 cents, 1.3 cents
below Tang’s rate, consistent with a reduced role for piece rates.
Stralberg Response to POIR 18
Item a, part 2 of 2
Page 1 of 9
RESPONSE OF WITNESS HALSTEIN STRALBERG (TW-T2) TO POIR 18 a (part 2 of 2)
POIR 18
Please refer to Time Warner witness Mitchell’s workpaper ‘Wp Mitchell-3F06.xls,’ worksheet ‘tybr-4.’
(a) Please provide billing determinants and estimates of test year after-rates volumes and
revenues for each of the rate categories (existing and new) proposed. Provide them
separately for Regular Rate, Nonprofit, and Classroom Periodicals.
Response:
a.
In the following I use the term ‘former subclass’ to refer to either Regular Rate,
Nonprofit or Classroom Periodicals. My part in responding to POIR 18 was to develop
test year before rates (TYBR) billing determinants for each former subclass, similar to
those presented for the Outside County subclass in Exhibit B of my direct testimony
(TW-T-2).
As explained in my testimony, the billing determinant volume data presented in my
Exhibit B and used in witness Mitchell’s workpaper were developed mostly from a series
of Excel tables filed by witness Loetscher as part of his responses to interrogatories
TW/USPS-T28-1-11. Those tables were developed from the data collection described
in LR-L-91.
Information on whether publications were Regular Rate, Nonprofit or Classroom was
collected as part of the LR-L-91 effort.
However, the relevant tables provided by
Loetscher are not broken down by the former subclasses. The billing determinants I
provided to Mitchell were developed only for the Outside County subclass.
In
responding to the POIR 18 request to provide separate billing determinants for the
former subclasses, I considered two options:
(1)
Request that the Postal Service provide separate LR-L-91 based tables
for each former subclass, similar to the Loetscher tables referred to above.
While it is possible that this approach might have given the most accurate
results, I could have no certainty about when or whether the data would become
available.
I was also concerned that the LR-L-91 data might not include
Stralberg Response to POIR 18
Item a, part 2 of 2
Page 2 of 9
sufficient samples to provide accurate details on Classroom and perhaps not
even on Nonprofit publications.1
(2)
Distribute the piece, bundle, sack and pallet counts already generated for
the Outside County subclass among the former subclasses by extrapolating
known information, including the Postal Service’s FY2005 billing determinants
and information from earlier dockets. While this approach necessarily requires a
number of assumptions, I concluded it could be carried out in a way that would
reflect the most important characteristics that distinguish the former subclasses
from one another. Such characteristics include the higher level of presort and
higher number of pieces per bundle for nonprofit publications, which would
cause them to incur fewer piece related and bundle related charges under the
rates proposed by Mitchell.
I have carried out the second approach. The TYBR volumes of pieces, bundles, sacks
and pallets, corresponding to those in Exhibit B of my testimony but separate for each
former subclass, are presented in a series of tables at the end of this response. They
were provided to witness Mitchell, who used them in the new version of his rate design
spreadsheet and computed the corresponding after rates volumes.
See Mitchell's
response to this POIR and library reference TW-LR-5.
The remainder of this response describes the methodology by which I carried out the
second approach. The actual calculations are shown in a spreadsheet provided as
library reference TW-LR-4.
1
The relevant Loetscher tables that would have had to be provided in expanded form are the tables
numbered 9, 13 and 14 in his responses to TW/USPS-T28-1-11. Loetscher’s tables are also broken down
by publications circulation size, and that breakdown would not be necessary for the purposes discussed
here.
Stralberg Response to POIR 18
Item a, part 2 of 2
Page 3 of 9
A. Piece Volumes
For each former subclass, I extracted from the Postal Service’s FY2005 billing
determinants the base year volume (excluding auto letters) in each of the following rate
categories:
(1)
basic non-auto;
(2)
3-digit non-auto;
(3)
5-digit non-auto;
(4)
carrier route;
(5)
basic auto;
(6)
3-digit auto; and
(7)
5-digit auto.
For each rate category, I determined the percentage that each former subclass
contributes to the Outside County totals.
I then started with a table, generated from Loetscher’s table 9 and representing the
base year version of Table B3 in my direct testimony, containing base year piece
volumes for outside county non-letters. Each cell in that table is associated with exactly
one of the seven rate categories listed above. I created three new tables, in similar
format, by multiplying each cell in the original table with the percentage that each
former subclass contributes to the rate category corresponding to the given cell.
Each of the new tables, representing base year Regular Rate, Nonprofit and Classroom
non-letter volumes, was then modified, first by applying the appropriate BY to TYBR
volume ratio, then by the transformation described in my testimony to simulate
migration due to the 24-piece sack minimum.2
2
See TW-T-2 at 29-34 and Ex. B. To carry out the procedure described above I first made small
adjustments, as shown in TW LR-4, to the estimates derived from Loetscher’s tables so that the Outside
County volume with carrier route presort would match exactly that in the billing determinants and so that
the volume of each auto presort category would match that in the billing determinants minus the auto letter
volumes. The resulting surplus volumes in the three non-auto, non-carrier route categories constitute my
estimates of non-auto letter volumes in each subclass, which I also provided to witness Mitchell.
Stralberg Response to POIR 18
Item a, part 2 of 2
Page 4 of 9
B. Bundle Volumes
In the Time Warner et al. Complaint case (Docket No. C2004-1) I developed estimates
of pieces per bundle for each combination of bundle presort level, container type and
container presort, based on the Postal Service’s R2000-1 mail characteristics survey. I
extrapolated those results to include similar estimates for Classroom publications. The
results indicated that in almost all cases, the average number of pieces per bundle for
Nonprofit publications was significantly higher than the corresponding number for
regular rate.
This would indicate that in a rate structure that includes per-bundle
charges, such as that proposed by witness Mitchell in this docket, nonprofit publications
would on the average incur fewer bundle charges for a given number of pieces.
I assumed that a similar relationship would apply today.3
To develop a complete
estimate of bundle volumes for each of the former subclasses in the current case, I
employed the following procedure, for each combination of bundle presort, container
type, container presort and former subclass.
First, I developed a preliminary estimate of the number of bundles in each cell by
dividing the number of pieces in that cell (as developed by the procedure described in
part A above) by the complaint case estimate of pieces per bundle. I then divided the
current Outside County estimate of bundles in the given cell by the sum of the
preliminary estimates in that cell for the former subclasses.
That factor was then
applied to adjust the bundle volume estimate for each former subclass, for the given
combination of bundle presort, container type and container presort.
C. CONTAINER VOLUMES
My direct testimony describes how I developed a test year profile of the numbers of
sacks and pallets, per entry point and container presort level, while maintaining
3
It is likely that Nonprofit publications will always have a higher average number of pieces per bundle,
since heavier Regular rate publications often face weight limits on bundle size, and may also face
limitations because of the Postal Service’s complex regulations meant to reduce the incidence of bundle
breakage.
Stralberg Response to POIR 18
Item a, part 2 of 2
Page 5 of 9
consistency with witness Tang’s estimate of the total number of sacks and pallets in the
test year.
In order to develop a test year container profile .for each of the former subclasses of
Outside County Periodicals, I first developed profiles for each subclass of the number of
containers by container type and container presort. In a subsequent step I added the
breakdown by entry point for each subclass,
To accomplish the first step I made use of the following information:
(1)
estimates of the number of pieces per former subclass, container type and
container presort level, as developed in the Complaint case;
(2)
similar estimates for TY08, developed as described in Section A above;
(3)
estimates of the number of sacks and pallets, by container presort level and
former subclass, as developed in the Complaint case; and
(4)
estimates of the number of TY08 Outside County sacks and pallets, by
container presort level, developed as described in my direct testimony.
The calculations performed can be seen from the spreadsheet formulas in TW LR-4.
The results of this step are shown in the table below.
Table POIR18-1: Estimated Number of Test Year Containers By Subclass
Type
Sacks
Pallets
Presort
MADC
ADC
3-D/SCF
5-d
5-d CR
CR
ADC
3-D/SCF
5-Digit
Regular Rate
3,804,035
7,972,972
21,279,353
3,770,187
1,600,202
1,911,325
707,105
2,077,144
548,309
Nonprofit
488,157
1,107,074
2,550,272
819,740
499,698
389,920
71,236
249,867
152,251
Classroom
49,991
101,852
266,539
36,467
12,227
12,256
6,136
14,576
4,015
Total
4,342,183
9,181,897
24,096,164
4,626,394
2,112,127
2,313,500
784,478
2,341,587
704,575
The next step was to develop entry point estimates for each volume in the above table.
Stralberg Response to POIR 18
Item a, part 2 of 2
Page 6 of 9
I broke this step into two parts. First, for each cell in the table, I estimated the number
of containers that are dropshipped (i.e., entered at the DADC or closer) and not
dropshipped (entered at the DBMC, OBMC, OADC or OSCF). For this purpose I made
use of the information on dropshipping of sacks and pallets that can be extracted from
existing billing determinants.4 The details of these calculations are shown in TW LR-4.
Finally, having determined the number of containers of a given type, presort and former
subclass that would be dropshipped in the test year, I assumed for the sake of
simplicity (lacking more detailed information) that the percent going to each dropship
entry (DDU, DSCF or DADC) would be the same for each former subclass as for the
combined Outside County subclass. Similarly, for the sacks and pallets that are not
dropshipped, I assumed that their distribution between DBMC, OBMC, OADC and
OSCF entry is the same for each former subclass as for Outside County as a whole.
The tables on the following pages are those I provided to witness Mitchell to enable his
response to this POIR.
4
For example, current billing determinants for each subclass indicate the number of pieces receiving the
destination pallet discount and the non-destination pallet discount, from which one can determine the
percent of palletized pieces that is dropshipped and non-dropshipped. Similarly, the number of pieces
receiving the DDU, DSCF or DADC dropship discounts, minus the number of pieces receiving the
destination pallet discount, must be the number of pieces in dropshipped sacks, etc. This information is
used in combination with the volumes in Exhibit B of my testimony of the total number of dropshipped and
non-dropshipped sacks and pallets, to estimate how many sacks or pallets at a given presort level and in
each subclass are respectively dropshipped or not dropshipped.
Stralberg Response to POIR 18
Item a, part 2 of 2
Page 7 of 9
Test Year BR Volumes of Periodicals Flats by Subclass & Piece Characteristics
MADC
NBC/NM
NBC/M
BC/NM
BC/M
NBC/NM
NBC/M
BC/NM
BC/M
NBC/NM
NBC/M
BC/NM
BC/M
NBC/NM
NBC/M
BC/NM
BC/M
NM
M
NM
M
ADC
3d
5d
CR
Firm
Total Flats:
Regular
1,663,501
14,279,222
2,573,274
8,061,484
9,173,554
38,948,589
21,032,501
102,345,033
57,527,670
125,356,363
169,485,605
731,584,545
73,349,391
124,949,192
346,488,732
1,729,622,559
352,438,397
2,520,647,235
4,203,641
12,852,074
6,446,582,563
Nonprofit
263,608
2,262,772
447,815
1,402,904
1,453,697
6,172,029
3,660,191
17,810,645
8,640,578
18,951,778
28,001,877
120,870,091
17,180,215
28,918,719
70,157,891
350,218,229
128,315,980
917,718,736
666,134
2,036,617
1,725,150,508
Classroom
31,672
271,868
23,654
74,104
174,659
741,557
193,338
940,790
1,786,967
3,714,418
1,958,454
8,453,667
1,100,066
1,893,885
2,839,421
14,173,988
2,669,532
19,092,551
80,035
244,696
60,459,321
OC total
1,958,782
16,813,861
3,044,744
9,538,492
10,801,910
45,862,176
24,886,030
121,096,468
67,955,215
148,022,558
199,445,936
860,908,303
91,629,673
155,761,795
419,486,044
2,094,014,776
483,423,909
3,457,458,523
4,949,810
15,133,387
8,232,192,392
Estimated Test Year BR Non- Auto Letters By Subclass
Presort
Basic:
3-D
5-D
Total:
Regular
13,069,766
4,435,286
7,015,330
24,520,382
Nonprofit
2,133,670
678,867
1,753,119
4,565,656
Classroom
256,304
152,705
96,843
505,852
Total:
15,459,740
5,266,858
8,865,292
29,591,890
Stralberg Response to POIR 18
Item a, part 2 of 2
Page 8 of 9
Adjusted TYBR Counts of Regular Rate Bundles Per Bundle & Container Presort Level
Bundle
Presort
MADC
ADC
3-D
5-D
CR
Firm
Total
MADC
2,994,825
7,122,094
6,476,870
1,972,294
6,146,471
24,712,552
ADC
6,985,967
16,255,916
5,634,374
4,852,808
33,729,064
Sacks
SCF/3-D
5-Digit
33,787,878
36,926,970
4,643,684
4,430,056
79,788,588
5-D CR
CR
4,753,889
228,585
4,982,474
6,775,717
638,994
7,414,711
3,019,697
3,019,697
ADC
Pallets
3D-SCF
5-Digit
350,099
10,157,622
30,246,190
11,015,975
787,364
52,557,250
7,178,275
83,226,882
196,423,505
168,039
286,996,701
763,175
28,468,968
1,757
29,233,900
Total
Bundles
2,994,825
14,458,159
73,856,560
163,523,773
250,347,547
17,254,072
522,434,936
Adjusted TYBR Counts of Nonprofit Bundles Per Bundle & Container Presort Level
Bundle
Presort
MADC
ADC
3-D
5-D
CR
Firm
Total
MADC
337,833
1,165,213
986,095
522,273
ADC
767,793
2,558,742
1,106,249
974,007
3,985,421
769,005
5,201,790
Sacks
SCF/3-D
5-Digit
3,353,025
4,843,252
1,023,518
702,013
9,921,808
5-D CR
CR
659,689
36,223
695,912
1,877,908
101,259
1,979,167
517,937
517,937
ADC
34,802
1,201,980
3,955,166
3,029,682
124,770
8,346,401
Pallets
3D-SCF
1,455,613
11,899,231
40,961,060
26,628
54,342,533
5-Digit
97,219
8,071,793
278
8,169,290
Total
Bundles
337,833
1,967,808
9,555,457
23,083,079
55,481,898
2,734,185
93,160,260
Adjusted TYBR Counts of Classroom Bundles Per Bundle & Container Presort Level
Bundle
Presort
MADC
ADC
3-D
5-D
CR
Firm
Total
MADC
44,705
87,353
90,893
23,457
117,025
363,433
ADC
78,263
237,993
59,287
92,394
467,938
Sacks
SCF/3-D
5-Digit
475,263
344,212
31,031
84,346
934,852
5-D CR
CR
43,941
4,352
48,293
49,923
12,166
62,089
18,109
18,109
ADC
Pallets
3D-SCF
4,613
134,800
228,102
74,552
14,991
457,058
107,889
667,710
1,277,806
3,199
2,056,604
5-Digit
6,633
206,199
33
212,865
Total
Bundles
44,705
170,229
1,046,838
1,373,342
1,657,620
328,507
4,621,241
Stralberg Response to POIR 18
Item a, part 2 of 2
Page 9 of 9
Regular Rate Sack & Pallet Counts By Entry Point & Container Presort (TY08 BR)
Container
Type
Presort
Sacks MADC
ADC
3-D/SCF
5-d
5-d CR
CR
Pallets ADC
3-D/SCF
5-Digit
DDU
DSCF
142,925
20,375
77,842
3,533,942
1,414,128
609,332
1,072,088
1,876
1,394,581
489,621
DADC
820,322
1,235,072
428,603
76,007
284,765
353,828
262,380
37,972
Entry Point
DBMC
OBMC
8,113
271,616
10,875
712,372
56,821
1,747,863
12,186
83,409
4,495
278,669
6,746
112,218
4,608
4,253
11,804
7,849
565
84
OADC
1,870,524
2,973,719
7,538,914
1,147,291
257,366
224,394
173,969
207,185
9,734
OSCF/OAO
1,653,783
3,455,682
7,166,741
541,645
353,957
133,271
170,447
193,345
8,457
Nonprofit Sack & Pallet Counts By Entry Point & Container Presort (TY08 BR)
Container
Type
Presort
Sacks MADC
ADC
3-D/SCF
5-d
5-d CR
CR
Pallets ADC
3-D/SCF
5-Digit
DDU
DSCF
20,804
5,039
13,962
140,997
205,835
150,689
192,294
497
164,114
129,690
DADC
71,892
49,277
62,386
18,797
51,076
27,939
30,877
10,058
Entry Point
DBMC
OBMC
1,041
34,855
1,574
103,100
8,122
249,841
3,624
24,806
1,634
101,305
1,877
31,217
565
521
1,542
1,025
360
54
OADC
240,037
430,378
1,077,617
341,202
93,560
62,421
21,321
27,059
6,203
OSCF/OAO
212,223
500,131
1,024,419
161,084
128,674
37,073
20,890
25,251
5,389
Classroom Sack & Pallet Counts By Entry Point & Container Presort (TY08 BR)
Container
Type
Presort
Sacks MADC
ADC
3-D/SCF
5-d
5-d CR
CR
Pallets ADC
3-D/SCF
5-Digit
DDU
DSCF
154
17
48
5,733
1,525
497
662
10
8,954
2,559
DADC
1,149
2,004
462
62
176
2,251
1,685
198
Entry Point
DBMC
OBMC
107
3,569
153
10,029
891
27,398
234
1,604
59
3,630
161
2,677
51
47
111
74
37
6
OADC
24,581
41,867
118,174
22,068
3,352
5,353
1,913
1,941
645
OSCF/OAO
21,733
48,653
112,340
10,418
4,611
3,179
1,875
1,812
560